Fixing A Struggling Family Business - American Management Services, Inc

Fixing A Struggling Family Business

How do you fix a struggling family business?

A Minnesota cement subcontractor had been doing business just outside the Twin Cities area for more than 40 years. The company, which we’ll call “In-the-Mix, Inc.,” benefited from a building boom, particularly among shopping mall developers throughout the North Star state. But the sector has been contracting for several years and the company’s annual revenue has shrunk from $20 million to $10 million.

The father and founder of this family business, started the company out of his bedroom, and has accumulated a conspicuous amount of wealth in the form of several homes, flashy sports cars, and a yacht. The books are a mess and In-the-Mix is about to be audited. The family’s homes have been mortgaged and 401ks have been cashed in. There is a chance the business will survive. But it’s time to clean up and consolidate.

The two sons who run the business with their father understand they need to make changes. There isn’t enough future growth in the business for all of them to make a living from it, and the family dynamic has put company management into a state of paralysis.

Here are the challenges facing most family businesses:

  • Owners, who are parents, forget to be bosses and fail to hold their children accountable.
  • Children, who are equity partners, fail to stand up to their elders and put profits first.
  • Non-family employees fail to perform because they despair of ever getting ahead in a company.
  • Business meetings become more like a family dinner gone bad, and important decisions don’t get made.

In-the-Mix needed to separate the business facts from its family dynamics and deal with the realities of a shrinking industry. Somebody had to go. The son who has a business degree had some great ideas about running his own operation. I strongly recommended that he sell his share of the company to his father and brother and go it alone. We advised him to schedule a few hours a week with his dad to pass on certain responsibilities and ease the transition. We told the father to retake control of the business, strip down expenses, sell off the luxuries, and cut the remaining son’s salary. If the father doesn’t take this action now, there won’t be a business for the next generation to inherit.

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